A crackdown on greed and excess in the City is being promised by the Government to clean up the financial system after the banking turmoil of the past week.

The financial watchdog is to take stringent action to curb “irresponsible” bonuses that could encourage people to take excessive risks; it has already started making spot checks on firms. Banks thought to be flouting risk management guidelines may be forced to revise their reward systems.

Gordon Brown, who is staking his own survival on guiding Britain through the economic crisis, is backing the action by the Financial Services Authority (FSA) and is also seeking international agreement that will allow regulators in different countries to swap information so that poor practices are highlighted earlier.

In an interview with The Times today Yvette Cooper, Chief Secretary to the Treasury, said that greed has to be tackled. And the FSA’s new chairman, Lord Turner of Ecchinswell – the former CBI chief Adair Turner – said that “very important questions” needed to be asked about the bank world’s bonus system.

Lord Turner told Sky News that while regulators should not get directly involved in what people were paid, they had a right to ask whether banks were paying too much for “unreal” profits and trading practices that stored up problems for the future.

He was commenting after reports that Barclays was set to honour a $2.5 billion (£1.4bn) bonus pot for Lehman Brothers, the US investment bank that collapsed a week ago, sparking days of global turmoil. Barclays immediately bought up the bank’s US core investment banking operations, which employ around 10,000 staff.

Most of the 350,000 workers in London’s financial services industry get some kind of annual bonus, with thousands getting more than £1 million and a handful said to be awarded as much as £10 million. Bonuses played a key part in driving the housing market bubble, pushing up prices for properties in the £1 million to £5 million bracket. Savills estimates that £5.5 billion was invested in property last year by City bonus buyers alone.

In his speech to the Labour conference in Manchester today, Alistair Darling will promise to take whatever steps are necessary to tackle weaknesses in the financial system. The Chancellor will promise that he and Mr Brown will work with the US and European governments “to put in place measures to help to prevent the mistakes and misjudgments which caused this crisis”.

Ministers and government officials emphasised last night that the new interventionist line did not mean that Labour had abandoned its support for the market. The Prime Minister told the BBC: “We are a pro-business government, we are pro-market. But it will help business best if we can clean up what went wrong. I think there’s an element of the bonus system that is unacceptable.”

Ministers were wary of talking about executive pay until recently but the recent turmoil has led to a change of tone. Asked if “greedy” City traders had let down the country, Mr Brown said: “I think it’s fair to say there’s been a great deal of irresponsibility. When you get bonuses and salaries based on short-term deals that have no relationship to long-term performance then you have to look again at what the system is doing.”

Mr Brown, beleaguered for months, will ask his party and the country this week for more time, contending that he alone has the economic experience to guide the country through the crisis. He is trying to display a more human image, saying he would “do better” and admitting mistakes over the 10p tax rate. He said the best way to deal with the “economic storm” was to face it and “demonstrate judgment and demonstrate wisdom”.

Asked if his Cabinet were behind him, he said: “I think we have a pretty united Cabinet. I think people in the Labour Party want the Cabinet to work together to deal with the economic problems we face.”

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